DRDGOLD Responds to Acid Mine Drainage Claims

Acid mine drainage (AMD) has captured the headlines once again in South Africa’s media in recent weeks. DRDGOLD Limited, as a continuing participant in the South Africa gold mining and recovery sector, has been approached repeatedly for its position on the subject. For ease of reference and in a bid to ensure consistency in interpretation, the company’s stance is documented here by CEO Niël Pretorius.

In the latter part of the 1990s, DRDGOLD secured, through a series of tribute and sub-tributing agreements a number of mining leases over an area belong to mines that had become defunct, namely East Chamdor, Luipardsvlei Estate and West Rand Consolidated. These mines had all closed down and had become, for all intents and purposes, an environmental nuisance for their owners.

Over the next few years, in the period leading up to the introduction of the new Mineral and Petroleum Resources Development Act (MPRDA), DRDGOLD subsidiary West Wits Mining Limited mined approximately 978 000 tons from underground at these mines. These volumes, recovered over a period constituting less than 5% of the total duration for which these mines were operated, constituted 0.5% per cent of the total number of tonnes mined from underground.

DRDGOLD later sold the surface operations, quipment for extraction and mining of coaland these were subsequently acquired by Mintails Limited. Mintails invested substantial amounts of capital into these operations and has been running them ever since. The underground section of the mine was transferred to Australian Stock Exchange-listed West Wits Mines for shares (still unlisted) in 2007. The arrangement with the new owner was that it would not inherit historical liabilities with regard to underground mine water arising from a series of directives issued by the Department of Water Affairs and Forestry (DWAF) shortly before the transaction. However, any guarantees or undertakings required by the regulator in order to qualify for them to procure the issuance of mining rights over the area would have to be provided by West Wits Mines.

At the time the directives were issued, DWAF’s view was that DRDGOLD was responsible for approximately 44% of the treatment costs of AMD in this area. DRDGOLD challenged the directives for reasons set out in more detail below, and in 2009 they were withdrawn unconditionally.

At the same time, various non-governmental organisations (NGOs) became increasingly aware of, and actively involved in, the issue of AMD. They started to exercise pressure on both Government and the mines in the area to provide a remedy for the threat to the environment.

Amid this myriad opposing interests, DRDGOLD had to take a decision as to how, and to what extent, it would participate in finding a permanent and sustainable solution to the AMD problem.

On the one hand, as custodian of the collective interest of its shareholders, it is the duty of the executive of DRDGOLD not to assume a financial burden in excess of what the company is legally obliged to carry. On the other hand, as a good corporate citizen that had previously benefited from the mining of minerals on this site, it could be argued that DRDGOLD ought to be seen to play a pro-active and constructive role in finding a solution for the legacy issues of mining this footprint and in respect of AMD particularly.

The latter issue involves considerations of DRDGOLD’s social licence to mine –what actions on the part of the company will be considered to show an adequate level of social responsibility in order for it to be allowed to continue to access and profit from the mineral wealth of South Africa for the benefit of its shareholders? The former issue is a question of simple legal responsibility, based on a clinical and factual investigation of cause and effect.

To what extent had our subsidiaries’ activities, ie. digging open and exposing a polluting rockface, contributed to the problem of AMD? Based on this test – ie. the extent to which the activities of our subsidiary as described above have proportionately contributed to the extent of the problem – we came to the conclusion that the DRDGOLD’s subsidiaries’ contributed to approximately 1.5% of the problem.

We arrived at this conclusion by calculating the amount of rock that our subsidiaries removed from underground as a percentage of the total amount of rock removed over the life of these operations. The amount of pollution that takes place is directly proportionate to the size of the underground cavity that was created through mining, and that is determined by calculating the total amount of rock that was removed from underground. This, we believe, is the best available method of determining just how much of the pollutants that lie exposed in the underground cavity was exposed by our subsidiaries' activities. We are firmly of the view that any regulatory or administrative conduct that would cast on to our company a burden in excess of that which of we were the cause will not withstand judicial scrutiny within the context of the basic rights afforded by our country’s constitution.

On this basis, any attempt to force a financial burden on DRDGOLD in excess of 1.5% of the costs of treating AMD would be challenged in the appropriate forum. That has been my view since I became involved in the affairs of this company, firstly as its legal representative in 2003 and subsequently as the head of its South African operations in 2006 and Chief Operating Officer in 2009. It is also on this basis that we defended the aforementioned directives, and which consequently led to their withdrawal.

However, the duties associated with good corporate citizenship required, in our view, that DRDGOLD had to be seen to strike a balance between that which it was legally obliged to do, and that which it ought to do, having regard to its available resources. Therefore, in response to these considerations, DRDGOLD took the following steps and participated in the following measures:

• In August 2005, in collaboration with Harmony and Mintails, it established the entities which ultimately became Western Basin Environmental Corporation (WBEC) and Western Utilities Corporation (WUC).


• It co-funded for a period of two years after the establishment of WUC, in collaboration with Mintails and Harmony, the costs of treating AMD prior to discharging it into the natural environment. The two-year period was agreed between the mines and the regulator in order to investigate and implement a long-term, sustainable solution.


• It established, in collaboration with Mintails and Harmony, a set of commercial parameters and approvals with the regulator which paved the way for WUC to obtain private funding in addition to the contribution we, the mining companies, were making to treatment costs.

Armed with these approvals, WUC was able to raise more than R75 million on the capital markets which it applied, during the course of the next four years, towards research and development and the construction of a pilot plant.

It also managed to conduct and complete a bankable feasible study (the ultimate objective of this initiative) in accordance with commercial and regulatory parameters which it consistently agreed with Government during the four-year period over which the project spanned.

The outcome of this initiative was a presentation to Government late in 2009 a complete self-sustaining solution capable of operating independently of any further financial assistance from the mines and which, in fact, would survive the ultimate closure of the remaining few mines in the area.

The study also went beyond the territorial boundaries of the West Rand and included a complete and sustainable long-term solution for the Central and Eastern Basins as well.

• Following Government’s rejection of this proposal for reasons never formally communicated to us (but which appeared to revolve around issues of transformation, black economic empowerment and a reluctance to allow foreign investment to exercise a measure of control over a natural resource), DRDGOLD participated further with the founding partners of WUC to put together a revamped proposal, substituting the foreign investment component that the regulator had found unacceptable, with a contribution from Goverment. This proposal has now been presented to the regulator and we await the outcome of its deliberations.


• As part and parcel of the initial proposal and subsequent, revamped proposal, DRDGOLD placed at the disposal of the WUC – on very soft commercial terms and subject to conditions related only to access to water for purposes of its reclamation activities:

1. access to underground water by way of a fully serviced underground shaft; and


2. the use of a high density separation purification plant with an approximate capacity of 80 million litres per day.

The estimated cost of constructing these facilities (excluding the cost of actually sinking a shaft deep enough to gain access to the water) is in excess of R500m.

In order to provide working capital for this venture, in addition to cash contributions made in collaboration with Mintails during the initial two years and subsequent financial assistance to WUC in order to keep the process going, DRDGOLD also established a trust and dedicated to it the entire income of a waste rock dump situated on its West Wits mine with an estimated commercial value of R45m. The administrative machinery of the regulator has to date been incapable of clearing these materials for sale, notwithstanding compelling evidence to the effect that, from an environmental perspective there is no impediment whatsoever to its disposal. The unfortunate reality is that we have now seen high-demand cycles associated with the upgrading of our road infrastructure, Gautrain and Soccer World Cup infrastructure come and go whilst waiting for these regulatory approvals simply to be considered and for some clarity to be given by the regulator tasked with this particular resource.

This is as far as the demands of good corporate citizenship take us, I believe. The solution in which we have participated, in collaboration with all these other companies, is a complete, self-sustainable and scientifically sound solution and will outlive the lives of the mines on this footprint.

We appreciate that the regulator has a very complex set of facts and interests it needs to factor into its considerations in determining this proposal: the commercial reality of setting up a plant and infrastructure capable of dealing with the problem; the demands of society to live in a clean environment; the requirements of contemporary political morality demanding that imbalances of the past be remedied; transformation; and black economic empowerment to name but a few.

We are confident that the revised proposal that we have submitted to Government in recent weeks, strikes a satisfactory balance between all of these considerations, and that Government has been placed in a position where it should be able to give the go-ahead for implementation.